Foundation Ongoing contributions reduce return requirement

The 2013 AM exam shows that on going contributions of a foundation do not reduce the return requirement, but do reduce liquidity requirement. Makes sense.

But then the Kaplan live exam and also the Kaplan Live Class use the contributions to reduce the return requirement. Why do they do that? It should just be (1+s)(1+inflation) (1+fees)-1 regardless right?

You must be confusing between contributions to and contributions from. When a foundation receives contribution, it means it receives money from donors. When foundation makes contribution to others, it means it pays/gives money. So if it is a requirement of a foundation to spend lets say 5% as contribution to a college lets say, we would have to include that in the return requirement.

I re-read the Live Exam and the Class Notes -> the return requirement is reduced due to investments, NOT contributions. I.E. Royalty Checks from a Donation and special dividends which were donated to the trust.

I have not seen examples out of this outside of Kaplan.

Anyone else notice this?

Yes, I thought it was wired that they reduced the return requirement by the donation of dividends too.

Now I’m reviewing the CFA 2013 AM, it makes me wonder if Schweser’s way of calculating required return is correct? CFA didn’t deduct the annual contributions of $2mm from the required return calculation.

Would like to listen to everyone else’s thoughts on this.

I have a thought but i’ll keep to myself until i can verify. If you have an example of 1 in schweser mock i can point out the diff, just list Q# and which volume mock it’s in.

But if you prefer, just email David Herrington ask him why it is different. I’m 99% certain schweser isn’t wrong nor is the CFAI. probably missing 1 small key difference.

I emailed them. The case facts specifically say it reduces the return requirement. Its weird.

turbo989 thanks for the effort. I re-read the case, truly it does say it. Have to let it go.